CPI Corp. Announces 2012 Third-Quarter Results
ST. LOUIS, Dec. 31, 2012 /PRNewswire/ -- CPI Corp.
(OTCQX: CPIC) today reported the results for the fiscal 2012
third quarter ended November 10, 2012.
- Fiscal 2012 third-quarter net sales declined 26% to
$69.5 million from $94.6 million in the prior-year third
quarter.
- Third-quarter PictureMe Portrait Studio® brand comparable
store sales, described herein, decreased 15% versus the same period
last year.
- Third-quarter Sears Portrait Studio brand comparable store
sales, described herein, decreased 21% versus the same period last
year.
- Third-quarter Kiddie Kandids® comparable store sales,
described herein, decreased 13% versus the same period last
year.
- Fiscal 2012 third-quarter Adjusted EBITDA (see
reconciliation below) improved to a loss of ($4.7) million from a loss of ($7.0) million in the prior-year third quarter
primarily due to cost reductions at the corporate and field
levels.
- Fiscal 2012 third-quarter diluted EPS declined to a loss of
($2.81) per share from a loss of
($1.03) per share in the prior-year
period primarily due to comparable store sales declines,
impairments and certain other charges.
Liquidity Update
Since late in fiscal 2011, the
Company has had on-going discussions with its lenders to obtain
covenant compliance waivers to cure defaults under its Credit
Agreement as well as increases to the available borrowing
capacity. These discussions have resulted in a number of
amendments to the Credit Agreement, the most significant of which
is an acceleration of the Credit Agreement's maturity date to
December 31, 2012 and the Company's
engagement of an investment bank to solicit offers for a sale
transaction involving the Company.
As of November 10, 2012, the
Company was not in compliance with certain provisions of its Credit
Agreement, as amended, including the Minimum Period Cumulative
EBITDAR covenant and certain studio closure and lease abandonment
provisions. Since that time, the Company has also fallen out
of compliance with several additional covenants and such
noncompliance exists as of today.
The Credit Agreement and amounts owed thereunder are currently
due and the Company does not have sufficient resources to repay
these amounts. The Company is currently negotiating a
forbearance agreement under which it is expected that the lenders
will forbear from exercising their rights and remedies under the
Credit Agreement until mid-January, subject to the Company's
compliance with certain conditions. There can be no
assurances that the lenders will grant such waivers or amendments
on commercially reasonable terms, if at all. If the Company
is unable to secure these additional amendments to the Credit
Agreement, the Company may be forced into an orderly liquidation or
bankruptcy. The outcome of restructuring and sale initiatives
required by the Credit Agreement, as amended, is uncertain and
involves matters that are outside of the Company's control.
The Company's interim financial information has been prepared
assuming that it will continue as a going concern; however, the
conditions noted above raise substantial doubt about the Company's
ability to do so. The interim financial information does not
include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount of and
classification of liabilities that may result should the Company be
unable to continue as a going concern.
Third-Quarter 2012 Results
The Company reported a net
loss of ($20.2) million and
($7.3) million, or ($2.81) and ($1.03)
per diluted share, for the third quarters ended November 10,
2012, and November 12, 2011, respectively. Earnings
in the period were significantly affected by comparable store sales
declines, impairments and certain other charges. Adjusted
EBITDA improved to ($4.7) million in
the third quarter of 2012 from ($7.0)
million in the prior year third quarter.
Net sales for the third quarter of fiscal 2012 decreased
($25.1) million, or (26.50)%, to
$69.5 million from the $94.6 million reported in the fiscal 2011 third
quarter. Net sales for the 2012 third quarter were
negatively impacted by net studio closings ($10.5 million), net revenue recognition change
($2.4 million), Bella Pictures®
operations ($1.9 million) and other
items ($256,000). Excluding the above
impacts, comparable same-store sales in the quarter decreased
approximately 13%.
Net sales from the Company's PictureMe Portrait Studio® (PMPS)
brand, on a comparable same-store basis, excluding impacts of net
revenue recognition change, studio closures and other items
totaling $4.3 million, decreased 15%
in the third quarter of 2012 to $36.8
million from $43.2 million in
the third quarter of 2011. The decrease in PMPS sales
for the third quarter was the result of a 14% decline in the
average sale per customer sitting and a 1% decline in the number of
sittings.
Net sales from the Company's Sears Portrait Studio (SPS) brand,
on a comparable same-store basis, excluding impacts of net revenue
recognition change, studio closures and other items totaling
$0.6 million, decreased 21% in the
third quarter of 2012 to $29.1
million from $36.9 million in
the third quarter of 2011. The decrease in SPS sales for
the third quarter was the result of a 14% decline in the average
sale per customer sitting and a 8% decline in the number of
sittings.
Net sales from the Company's Kiddie Kandids® (KK) studio
operations, on a comparable same-store basis, excluding impacts of
net revenue recognition change, studio closures and other items
totaling $3.4 million, decreased 13%
in the third quarter of 2012 to $2.6
million from $2.9 million in
the third quarter of 2011. The decrease in KK sales for
the third quarter was the result of a 12% decline in the average
sale per customer sitting and a 2% decline in the number of
sittings.
The Bella Pictures® operations contributed approximately
$1.7 million in net sales in the
third quarter of 2012, down 54% from net sales of $3.6 million in the third quarter of 2011.
Effective in the second quarter of fiscal year 2012, the Company no
longer pursued the business model and on December 17, 2012, the Company sold the Bella
Pictures® tradename, certain assets and all remaining customer
contracts. The sale will result in a net cash payout of
approximately $195,000, primarily
related to customer deposits received on open contracts. Also
in the second quarter of 2012, the Company discontinued its
Portrait Gallery from Bella Pictures operations.
Excluding the effects of impairments and other charges in both
periods, costs and expenses were $76.2
million in the third quarter of 2012, a 28% decline from
$106.1 million reported in the
comparable prior-year period.
Cost of sales, excluding depreciation and amortization expense,
decreased to $7.0 million in the
third quarter of 2012 from $8.6
million in the third quarter of 2011 primarily due to lower
overall production levels, offset in part by a higher-cost product
mix and higher shipping charges resulting from certain promotional
events.
Selling, general and administrative expense declined to
$67.2 million in the third quarter of
2012 from $92.9 million in the third
quarter of 2011, primarily due to net reductions in studio, field
and corporate employment costs, lower host commission expense due
to lower sales levels and reduced advertising expenses, partially
offset by increased employee insurance costs.
Depreciation and amortization expense was $2.0 million in the third quarter of 2012,
compared with $4.6 million in the
third quarter of 2011. Expense decreased in 2012
primarily as a result of significant impairment charges recognized
during the fourth quarter of fiscal year 2011 and throughout fiscal
year 2012, which resulted in lowering or eliminating the
depreciable base on many of the Company's long-lived assets.
The Company also sold a number of properties during fiscal year
2012, which is contributing to the decrease in depreciation expense
in the third quarter of 2012.
Impairment charges in the third quarter of 2012 were
$4.0 million and consisted of
$0.8 million and $3.2 million in charges related to the impairment
of certain long-lived property and equipment and certain intangible
long-lived assets, respectively.
In the third quarter of 2012, the Company recognized
$3.1 million in other charges,
compared with $699,000 in the third
quarter of 2011. The current-quarter charges primarily
relate to costs incurred in connection with the debt renegotiation
and costs incurred as the Company winds down its Bella Pictures®
operation. The prior-year charges primarily related to
severance and certain litigation costs.
Net interest expense increased to $6.1
million in the third quarter of 2012 from $1.3 million in the third quarter of fiscal 2011,
primarily as the result of higher average borrowings, the write-off
of certain prepaid debt fees and higher interest charges and fees
resulting from the Second Amendment to the Credit Agreement.
Income tax expense was $176,000 in
the third quarter of 2012 compared to an income tax benefit of
$7.4 million in the third quarter of
2011. The resulting effective tax rates were (1)% and
54% in 2012 and 2011, respectively. Beginning in the
fourth quarter of fiscal 2011, the Company established valuation
allowances against all of its deferred tax assets. Income tax
expense in the third quarter of 2012 is the result of current
income taxes payable in certain foreign taxing jurisdictions.
In the third quarter of 2011, income taxes were impacted by a
change in the annualized effective tax rate, as well as certain tax
benefits recognized related to a previous uncertain tax
position.
Preliminary Fourth-Quarter Net Sales
The Company's
preliminary comparable same-store net sales on a point-of-sale
basis for the first six (6) weeks of the fourth quarter of fiscal
2012 declined 22% to $50.1 million
from $64.4 million in the same period
last year. The number of sittings decreased 10% from the
prior year and the average sale per customer sitting decreased 14%
period over period.
Investor Relations
CPI Corp. uses the Investor
Relations page of its website at http://www.cpicorp.com to
make information available to its investors and the public.
You can sign up to receive e-mail alerts whenever the Company posts
new information to the website.
About CPI Corp.
For more than 60 years, CPI Corp. has
been dedicated to helping customers conveniently create cherished
photography portrait keepsakes that capture a lifetime of
memories. Headquartered in St.
Louis, Missouri, CPI Corp. provides portrait photography
services at more than 2,700 locations, 176 of which are temporary
in nature, throughout the United
States, Canada,
Mexico and Puerto Rico.
CPI's digital format allows its studios and on location business to
offer unique posing options, creative photography selections, a
wide variety of sizes and an unparalleled assortment of
enhancements to customize each portrait - all for an affordable
price.
Forward-Looking Statements
The statements contained in
this press release that are not historical facts are
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, and involve risks and
uncertainties. The Company identifies forward-looking
statements by using words such as "preliminary," "plan," "expect,"
"looking ahead," "anticipate," "estimate," "believe," "should,"
"intend" and other similar expressions. Management
wishes to caution the reader that these forward-looking statements,
such as the Company's outlook with respect to its significant
liquidity challenges and ability to continue as a going concern,
portrait studios, net income, future cash requirements, cost
savings, compliance with debt covenants, valuation allowances,
reserves for charges and impairments, capital expenditures and
other similar statements, are only predictions or expectations;
actual events or results may differ materially as a result of risks
facing the Company.
Such risks include, but are not limited to: the Company's
ability to operate as a going concern, the Company's ability to
sell or refinance its indebtedness prior to the expiration of its
Credit Agreement, the Company's need for additional liquidity,
declining sales trends in the Company's business, the Company's
dependence on Walmart, Sears and Toys "R" Us, the approval of the
Company's business practices and operations by Walmart, Sears and
Toys "R" Us, the termination, breach, limitation or increase of the
Company's expenses by Walmart under the lease and license
agreements and Sears and Toys "R" Us under the license agreements,
the Company's ability to comply with its debt covenants under its
Credit Agreement, as amended, restrictions on the Company's
business imposed by agreements governing its debt, the Company's
ability to generate sufficient cash flow or raise additional
capital to cover its operating expenses, the inability of the
Company to pay dividends, customer demand for the Company's
products and services, the economic recession and resulting
decrease in consumer spending, manufacturing interruptions,
dependence on certain suppliers, competition, dependence on key
personnel, fluctuations in operating results, a significant
increase in piracy of the Company's photographs, widespread
equipment failure, implementation of marketing and operating
strategies, outcome of litigation and other claims, impact of
declines in global equity markets to the pension plan, impact of
foreign currency translation and the limited trading market of its
stock.
The risks described above do not include events that the Company
does not currently anticipate or that it currently deems
immaterial, which may also affect its results of operations and
financial condition. The Company undertakes no
obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events
or otherwise.
CPI
CORP
CONSOLIDATED STATEMENTS OF
OPERATIONS
(In
thousands except per share amounts)
(unaudited)
|
|
|
16 Weeks
Ended
|
|
40 Weeks Ended
|
|
November
10,
2012
|
|
November 12,
2011
|
|
|
November
10,
2012
|
|
|
November
12,
2011
|
Net
sales
|
$
|
69,501
|
|
$
|
94,554
|
|
|
$
|
192,747
|
|
$
|
254,023
|
|
|
|
|
|
|
|
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and
amortization)
|
6,951
|
|
8,626
|
|
|
17,423
|
|
20,949
|
Selling, general and administrative
expenses
|
67,193
|
|
92,914
|
|
|
180,005
|
|
233,347
|
Depreciation and amortization
|
2,031
|
|
4,609
|
|
|
6,084
|
|
12,363
|
Impairments
|
3,955
|
|
—
|
|
|
25,843
|
|
—
|
Other charges
|
3,135
|
|
699
|
|
|
9,837
|
|
5,043
|
|
83,265
|
|
106,848
|
|
|
239,192
|
|
271,702
|
|
|
|
|
|
|
|
|
|
Loss from
continuing operations
|
(13,764)
|
|
(12,294)
|
|
|
(46,445)
|
|
(17,679)
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
6,068
|
|
1,286
|
|
|
11,204
|
|
2,562
|
Other expense, net
|
78
|
|
281
|
|
|
129
|
|
228
|
|
|
|
|
|
|
|
|
|
Loss from
continuing operations before income taxes
|
(19,910)
|
|
(13,861)
|
|
|
(57,778)
|
|
(20,469)
|
Income tax expense (benefit)
|
176
|
|
(7,442)
|
|
|
283
|
|
(8,803)
|
|
|
|
|
|
|
|
|
|
Net loss
from continuing operations
|
(20,086)
|
|
(6,419)
|
|
|
(58,061)
|
|
(11,666)
|
Net loss
from discontinued operations, net of income tax benefit
|
(120)
|
|
(830)
|
|
|
(2,076)
|
|
(1,220)
|
|
|
|
|
|
|
|
|
|
Net
loss
|
(20,206)
|
|
(7,249)
|
|
|
(60,137)
|
|
(12,886)
|
Net income
(loss) attributable to noncontrolling interest
|
23
|
|
1
|
|
|
(105)
|
|
(139)
|
|
|
|
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO CPI CORP
|
$
|
(20,229)
|
|
$
|
(7,250)
|
|
|
$
|
(60,032)
|
|
$
|
(12,747)
|
|
|
|
|
|
|
|
|
|
Amounts
Attributable to CPI Corp. Common Stockholders:
|
|
|
|
|
|
|
|
|
Net loss
from continuing operations, net of income taxes
|
$
|
(20,109)
|
|
$
|
(6,420)
|
|
|
$
|
(57,956)
|
|
$
|
(11,527)
|
Net loss
from discontinued operations, net of income taxes
|
(120)
|
|
(830)
|
|
|
(2,076)
|
|
(1,220)
|
Net
loss
|
$
|
(20,229)
|
|
$
|
(7,250)
|
|
|
$
|
(60,032)
|
|
$
|
(12,747)
|
|
|
|
|
|
|
|
|
|
Net
Loss per Common Share Attributable to CPI Corp.:
|
|
|
|
|
|
|
|
|
Net loss
per share from continuing operations
|
$
|
(2.79)
|
|
$
|
(0.91)
|
|
|
$
|
(8.14)
|
|
$
|
(1.64)
|
Net loss
per share from discontinued operations
|
(0.02)
|
|
(0.12)
|
|
|
(0.29)
|
|
(0.17)
|
Net loss
per share
|
$
|
(2.81)
|
|
$
|
(1.03)
|
|
|
$
|
(8.43)
|
|
$
|
(1.81)
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
7,200
|
|
7,040
|
|
|
7,118
|
|
7,027
|
CPI
CORP.
ADDITIONAL CONSOLIDATED OPERATING
INFORMATION
(In
thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
16 Weeks
Ended
|
|
40 Weeks
Ended
|
|
|
November
10,
2012 (1)
|
|
November
12,
2011
|
|
November
10,
2012
|
|
|
November
12,
2011
|
|
|
|
|
|
|
Capital
Expenditures
|
$
|
821
|
|
$
|
3,504
|
|
$
|
2,514
|
|
$
|
7,107
|
|
|
|
|
|
EBITDA
is calculated as follows:
|
|
|
|
|
|
|
|
|
Net loss
from continuing operations attributable to CPI Corp.
|
(20,109)
|
|
(6,420)
|
|
(57,956)
|
|
(11,527)
|
Income tax
expense (benefit)
|
176
|
|
(7,442)
|
|
283
|
|
(8,803)
|
Interest
expense, net
|
6,068
|
|
1,286
|
|
11,204
|
|
2,562
|
Depreciation and amortization
|
2,031
|
|
4,609
|
|
6,084
|
|
12,363
|
Impairments
|
3,955
|
|
—
|
|
25,843
|
|
—
|
Other
non-cash charges, net
|
222
|
|
27
|
|
658
|
|
(36)
|
|
|
|
|
|
|
|
|
EBITDA
(2) & (6)
|
$
|
(7,657)
|
|
$
|
(7,940)
|
|
$
|
(13,884)
|
|
$
|
(5,441)
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA (3)
|
$
|
(4,667)
|
|
$
|
(6,980)
|
|
$
|
(4,578)
|
|
$
|
(124)
|
|
|
|
|
|
|
|
|
EBITDA
margin (4)
|
(11.02)%
|
|
(8.40)%
|
|
(7.20)%
|
|
(2.14)%
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA margin (5)
|
(6.72)%
|
|
(7.38)%
|
|
(2.38)%
|
|
(0.05)%
|
(1)
|
During the
16-week period ended November 10, 2012, the Company recorded
adjustments related to the closure of studio locations subject to
operating leases, which resulted in a net expense of $756,000, to
correct errors in previously recognized liabilities for operating
leases recorded during the 12-week period ended July 21,
2012.
|
|
|
(2)
|
EBITDA
represents net earnings from continuing operations before interest
expense, income taxes, depreciation and amortization and other
non-cash charges. EBITDA is included because it is one liquidity
measure used by certain investors to determine a company's ability
to service its indebtedness. EBITDA is unaffected by the debt
and equity structure of the company. EBITDA does not represent cash
flow from operations as defined by GAAP, is not necessarily
indicative of cash available to fund all cash flow needs and should
not be considered an alternative to net income under GAAP for
purposes of evaluating the Company's results of operations. EBITDA
is not necessarily comparable with similarly-titled measures for
other companies.
|
|
|
(3)
|
Adjusted
EBITDA is calculated as follows:
|
EBITDA
|
$
|
(7,657)
|
|
$
|
(7,940)
|
|
$
|
(13,884)
|
|
$
|
(5,441)
|
EBITDA adjustments:
|
|
|
|
|
|
|
|
Litigation costs
|
157
|
|
(5)
|
|
424
|
|
2,189
|
Severance and related costs
|
41
|
|
411
|
|
1,481
|
|
1,702
|
Studio closure costs
|
860
|
|
—
|
|
3,529
|
|
—
|
Financial restructuring costs
|
1,080
|
|
—
|
|
2,485
|
|
—
|
Bella Pictures Acquisition costs
|
643
|
|
216
|
|
960
|
|
1,107
|
Currency translation loss
|
61
|
|
263
|
|
109
|
|
193
|
Other
|
148
|
|
75
|
|
318
|
|
126
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
$
|
(4,667)
|
|
$
|
(6,980)
|
|
$
|
(4,578)
|
|
$
|
(124)
|
(4)
|
EBITDA
margin represents EBITDA, as defined in (2), stated as a
percentage of sales.
|
|
(5)
|
Adjusted
EBITDA margin represents Adjusted EBITDA, as defined in
(3), stated as a percentage of sales.
|
|
(6)
|
As
required by the SEC's Regulation G, a reconciliation of EBITDA, a
non-GAAP liquidity measure, with the most directly comparable GAAP
liquidity measure, cash flows from continuing operations
follows:
|
|
|
|
|
|
|
|
|
|
16 Weeks
Ended
|
|
40 Weeks
Ended
|
|
November
10,
2012
|
|
November
12,
2011
|
|
November
10,
2012
|
|
November
12,
2011
|
EBITDA
|
$
|
(7,657)
|
|
$
|
(7,940)
|
|
$
|
(13,884)
|
|
$
|
(5,441)
|
Income tax
(expense) benefit
|
(176)
|
|
7,442
|
|
(283)
|
|
8,803
|
Interest
expense, net
|
(6,068)
|
|
(1,286)
|
|
(11,204)
|
|
(2,562)
|
Adjustments for items not requiring cash:
|
|
|
|
|
|
|
|
Deferred income taxes
|
—
|
|
(6,712)
|
|
(129)
|
|
(9,936)
|
Deferred revenues and related costs
|
610
|
|
1,412
|
|
1,321
|
|
2,607
|
Other, net
|
1,592
|
|
2,336
|
|
3,791
|
|
3,877
|
(Increase)
decrease in current assets
|
(2,601)
|
|
(7,840)
|
|
(601)
|
|
(7,634)
|
Increase
(decrease) in current liabilities
|
10,868
|
|
5,886
|
|
8,452
|
|
3,516
|
Increase
(decrease) in current income taxes
|
110
|
|
(1,757)
|
|
422
|
|
(2,485)
|
|
|
|
|
|
|
|
|
Cash flows
from continuing operations
|
$
|
(3,322)
|
|
$
|
(8,459)
|
|
$
|
(12,115)
|
|
$
|
(9,255)
|
|
|
|
|
|
|
|
|
CPI
CORP.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 10, 2012 AND NOVEMBER 12,
2011
(In
thousands)
(unaudited)
|
|
|
|
|
|
|
|
November 10,
2012
|
|
November 12,
2011
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,912
|
|
$
|
4,589
|
Other current assets
|
|
16,854
|
|
38,903
|
Net property and equipment
|
|
7,364
|
|
33,190
|
Intangible assets
|
|
16,746
|
|
57,710
|
Other assets
|
|
11,320
|
|
20,969
|
|
|
|
|
|
Total assets
|
|
$
|
56,196
|
|
$
|
155,361
|
|
|
|
|
|
Liabilities and stockholders' deficit
|
|
|
|
|
|
|
|
|
|
Current liabilities, including current portion of
long-term debt obligations
|
|
$
|
136,448
|
|
$
|
131,220
|
Long-term debt obligations
|
|
—
|
|
—
|
Other liabilities
|
|
38,392
|
|
27,743
|
Stockholders' deficit
|
|
(118,644)
|
|
(3,602)
|
|
|
|
|
|
Total liabilities and stockholders'
deficit
|
|
$
|
56,196
|
|
$
|
155,361
|
SOURCE CPI Corp.